Cambodia is forecast to have sub-7 per cent gross domestic product growth for the next three years, with reverberations from a China slowdown, the recently signed Trans-Pacific Partnership and constrained garment exports expected to weigh down the economy, according to a new World Bank report.
The Global Economic Prospects report, released yesterday, shows that the development bank forecasts 6.9 per cent growth in 2016, with 6.8 per cent forecast for 2017 and 2018. Whereas, growth in the East Asia Pacific region slowed to 6.4 per cent in 2015, with a further easing expected through 2018.
“This projection assumes that a gradual slowdown in China offsets a modest pickup in ASEAN countries,” the report reads. “Risks to the forecast remain tilted to the downside.”
According to the report, growth will remain below the 7 per cent mark in Cambodia due to various factors, such as weaker agricultural commodity prices, real currency appreciation and moderating growth from tourism after a period of strong gains in the sector.
The World Bank’s senior country economist Miguel Eduardo Sanchez Martin said that while strong domestic demand, boosted by construction growth and low oil prices, moderated an easing off in exports, there were other downsides as well.
“The tourism and agriculture sectors have shown signs of slowdown,” he said. “The agriculture sector has experienced a more severe slow down over the past couple of years, partly due to unfavourable weather conditions.”
Sanchez Martin added that revitalising agricultural growth by improving the quality of public programs on seeds and extension, coupled with developing agro processing capacity and creating a private sector friendly agro policy would help lessen the effects of the sector’s woes.
“In the case of tourism, the promotion of regional tourist destinations, as done in collaboration with Thailand under ‘Two Kingdoms-One Destination’, may help capture a larger share of the world tourism market,” he said.
Prospects for other regional economies were on a similar trajectory to the Kingdom’s, save Thailand and Myanmar. While growth in Myanmar was forecast to jump from 7.8 per cent in 2016 to 8.5 per cent in 2018, Thailand was expected to grow at 2.7 per cent in 2018, up from 2 per cent in 2016.
The report said Vietnam, which recently signed the 12-member Trans-Pacific Partnership (TPP) and a free trade agreement with the European Union, was expected to gain the most from China’s slowdown, buoyed by robust growth and increased foreign direct investment.
The report’s observation that the TPP would benefit participating member states at the cost of economies outside the agreement, like Cambodia, should be a serious concern for the government, said Grant Knuckey, CEO of ANZ Royal Bank.
“Cambodia needs to give careful consideration to the competitive impacts of the TPP for both existing key sectors, such as garments, as well as on the ability to gain entry to new manufacturing supply chains, given the TPP country of origin rules,” Knuckey explained.
“I believe the TPP needs to be firmly on the government radar, as it has much more immediate import than the AEC.”
Knuckey added that a strong US dollar and weak commodity prices would affect growth rates and exports, but it was important to focus on the quality of the growth.
“If growth was being driven by construction, then whether it is 7 or 6 per cent, either way it isn’t sustainable,” he said.
“A lower growth rate, but driven by consumption and capital investment, is superior, so it is the mix we need to watch.”